ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-10-101836-00
DATE: 20121207

BETWEEN:

ALAR INVESTMENTS NA LIMITED AND ALAR INVESTMENTS NA INC. Plaintiffs – and – VASILY ZAKHAROV Defendants

Leo Klug, for the Plaintiffs

Vasily Zakharov in person

HEARD: December 3, 4, 5, 6 and 7, 2012

mckelvey j.

REASONS FOR JUDGMENT

introduction

[ 1 ] This action concerns personal guarantees which are alleged to have been given by the defendant, Vasily Zakharov (“Zakharov”) to the corporate plaintiffs. Both of the plaintiff corporations are controlled by Mr. Norbert Horowitz. The loans are alleged to have been made to two companies. The first company, Smart Bakery Technology Inc. (“SBT”) is a company controlled by Mr. Zakharov. The other company Sollo Foods Inc. (“Sollo”) is a company in which both Mr. Zakharov and Mr. Horowitz had an interest.

BACKGROUND

[ 2 ] Norbert Horowitz is a businessman who operates two companies, Alar Investments NA Limited (“Alar Limited”) and Alar Investments NA Inc. (“Alar Inc”). Alar Limited was previously known as Alar Foods and Packaging Inc. It changed its name on November 12, 2008. The name change was registered on November 19, 2008. It does not appear that either party took notice of the fact that Alar Foods and Packaging Inc. changed its name. This action was commenced in the name of Alar Foods and Packaging Inc. It was only in the examination in chief of Mr. Horowitz at trial that the change of name came to light. After this evidence was heard the Plaintiff’s solicitor brought a motion to substitute Alar Limited as the correct corporate name for this company. This motion was granted during the course of the trial.

[ 3 ] Mr. Horowitz met Mr. Zakharov in August 2006. They were introduced by a mutual friend. Mr. Zakharov operated SBT. SBT was a company which made frozen desserts. Mr. Zakharov was looking for investors for SBT. Mr. Zakharov approached Mr. Horowitz who agreed to invest a total of $400,000 in SBT.

[ 4 ] Mr. Horowitz understood that Mr. Zakharov had a major contract with Walmart and needed the funds for future production.

[ 5 ] Mr. Horowitz testified at trial that he was prepared to advance a total of $400,000. Of this amount $10,000 was to be paid for a 29% share of SBT. The balance of $390,000 was to be paid as a loan from Alar Limited to SBT. It was agreed that this loan would be paid back if he did not become a shareholder.

[ 6 ] While Mr. Horowitz made some handwritten notes about his discussions with Mr. Zakharov there was no written agreement entered into between the parties prior to advances being made to SBT.

[ 7 ] On August 28, 2006 Alar Limited advanced the sum of $100,000 to SBT. On the face of the cheque is a memo describing these funds as a “loan”. A further advance of $100,000 was made to SBT on September 29, 2006.

[ 8 ] According to Mr. Horowitz Mr Zakharov’s lawyer prepared a series of agreements which were not acceptable to him. A draft share purchase agreement was delivered in October, 2006 in which Mr. Horowitz agreed to make a loan in the sum of $390,000 to Mr. Zakharov. However, the terms of the loan required no interest for a period of 50 years. The terms of the proposed agreement were not acceptable to Mr. Horowitz.

[ 9 ] Despite the fact that there was no written agreement in place Mr. Horowitz arranged for further advances to be made to SBT by Alar Limited. On January 10, 2007 Mr. Horowitz arranged for an advance of $50,000 followed by a $40,000 advance on February 27, 2007. There was in addition a further advance on March 20, 2007 of $40,000 together with a final advance on April 26, 2007 for $50,000. The last payment was written on a cheque drawn on Mr. Horowitz’s personal account. The other advances were drawn on the account of Alar Limited. Thus, by April, 2007 Mr. Horowitz had arranged for a total of $390,000 to be advanced to SBT. Up to this point there was no written documentation to document the terms relating to these advances.

[ 10 ] Two repayments were made by SBT to Alar Limited. The first occurred on June 15, 2007 for the sum of $100,000. The cheque from SBT notes on the bottom that this was a “loan return (Part 1)”. According to Mr. Horowitz a further repayment was subsequently made in the sum of $50,000. With these payments the amount of the principal for the loan was reduced to $240,000.

[ 11 ] The parties finally entered into formal written documentation. A promissory note dated January 14, 2008 was signed by Alar Limited, SBT and Mr. Zakharov personally. The promissory note documented the principal amount owing of $240,000 which was to be repaid on or before September 1, 2008 and that there would be an annual interest rate of 10 per cent. A personal guarantee was also given under the agreement. However, in the initial drafts the payments due under the note were to be secured by the personal guarantee of Mr. Horowitz. This appears to be an error as Mr. Horowitz was responsible for advancing the payments. Mr. Horowitz testified that the guarantee was intended to be given by Mr. Zakharov.

[ 12 ] In any event the promissory note was subsequently amended to reflect the identity of Mr. Zakharov as the guarantor. These changes were initialled by Mr. Zakharov.There was also a further change extending the time for repayment to September 1, 2009.

[ 13 ] In addition to signing the promissory note Mr. Zakharov also provided Mr. Horowitz with four cheques from SBT each in the sum of $60,000. The cheques were initially dated August 23, 2007, September 23, 2007, October 23, 2007 and November 23, 2007. The dates of these cheques have been changed by handwritten note which is signed with Mr. Zakharov’s initials. The new dates on the cheques are all November 26, 2008. Each of the cheques are drawn on an SBT account and marked “loan return”. These cheques were never cashed as SBT did not have the available funds to cover them.

[ 14 ] Mr. Zakharov did provide Alar Limited with three cheques which both parties agree were on account of accrued interest on the loan. There is a cheque dated December 2, 2008 for the sum of $15,200. There is also a cheque from SBT dated November 26, 2008 for $15,000. There is also a cheque dated May 16, 2008 for $15,000. All of these cheques were cashed by Alar Limited.

[ 15 ] Mr. Horowitz on behalf of Alar Limited claims that the sum of $240,000 is still owing on account of principal. Although the three cheques on account of interest were cashed there is a claim for additional interest which is alleged to be owing on the loan.

[ 16 ] In addition to the above transactions Mr. Horowitz through Alar Inc. gave $50,000 to Sollo. There is an agreement signed by Mr. Zakharov, Mr. Horowitz and Elana Zakarova. The terms of this agreement provide that Mr. Horowitz will deposit $50,000 Canadian to the account of Sollo as a loan to be repaid on or before March 1, 2010. It was agreed that Mr. Horowitz would be appointed as president of Sollo (with 51% ownership) and Mr. Zakharov would be appointed as secretary (with 49% ownership). As part of the agreement Mr. Zakharov signed a personal guarantee dated August 10, 2009 to pay back the sum of $25,000 to Alar Inc. on or before March 1, 2010. Interest is payable on this note at the rate of 6 percent per annum.

ISSUES

[ 17 ] The following issues have been raised by the defendant with respect to enforcement of the personal guarantees by Mr. Zakharov:

1. It is asserted that this action is statute barred as it was commenced outside the applicable limitation period.

2. With respect to the promissory notes relating to the SBT debt Mr. Zakharov states that he did not receive any legal advice and thought he was signing the promissory note as a director of SBT and not in his personal capacity. He asserts that he had difficulty understanding the wording of the promissory note because of a difficulty in understanding the English language. Mr. Zakharov’s mother tongue is Russian.

3. Mr. Zakharov appears to take the position that there was no consideration for the promissory note given with respect to the SBT debt.

4. It is asserted that the description of the lender as Alar Foods and Packaging Inc. negates the enforceability of the guarantee for the SBT debt.

5. With respect to the second personal guarantee contained in the promissory note for Sollo Mr. Zakharov agrees that he obtained legal advice at the time he signed the note and understood what he was signing. However, he maintains that by July 8, 2010 Mr. Horowitz asked him to leave Sollo and he resigned his position. He maintains there were sufficient funds in Sollo to pay off the bank debt at the time of his resignation.

6. The defence assets that both guarantees are void because there was no notice to the guarantor prior to commencement of the action.

IS THIS ACTION BARRED BY THE EXPIRY OF A LIMITATION PERIOD

[ 18 ] The limitation period in this action is governed by the provisions of the Limitations Act, 2002. Sections 4, 5 and Section 13 (1) and (2) of the Act provide as follows:

Basic Limitation Period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. 2002, c.24 , Sched.B, s.4.

Discovery

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to

by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a

proceeding would be an appropriate means to seek to remedy it;

and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of

the matters referred to in clause (a). 2002, c.24 , Sched. B, s.5(1).

Demand obligations

5. (3) For the purposes of subclause (1)(a)(i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made. 2008, c. 19 , Sched. L, s.1.

Acknowledgements

13. (1) If a person acknowledges liability in respect of a claim for payment of a liqudated sum, the recovery of personal property, the enforcement of a charge on personal property or relief from enforcement of a charge on personal property, the act or omission on which the claim is based shall be deemed to have taken place on the day on which the acknowledgement was made. 2002, c. 24 , Sched. B, s. 13 (1).

Interest

(2) An acknowledgement of liability in respect of a claim for interest is an acknowledgment of liability in respect of a claim for the principal and for interest falling due after the acknowledgement is made. 2002, c.24 , Sched. B, s. 13 (2).

[ 19 ] The Statement of Claim in this action was issued on November 10, 2010. It is apparent that there can be no limitation period argument with respect to the promissory note in relation to the loan to Sollo Foods by Alar Inc. The promissory note and guarantee are dated August 10, 2009 and the action was therefore commenced well within the time permitted under the legislation.

[ 20 ] With respect to the claim by Alar Limited relating to the loan to SBT the original advances were made prior to April, 2007. However, the promissory note is dated January 14, 2008. This note originally required repayment of the debt by September 1, 2008. The date for repayment was subsequently amended so that the loan was to be repaid on or before September 1, 2009. Given that repayment of the loan was not due until September 1, 2009 it would appear that this action was commenced within the time prescribed by law.

WITH RESPECT TO THE SBT DEBT AND THE GUARANTEE SIGNED BY MR. ZAKHAROV IS THERE A DEFENCE OF NON EST FACTUM

[ 21 ] The evidence in this case indicates clearly that the initial funds advanced to SBT were advanced as a loan which required repayment. This is reflected in the fact that the cheques issued by Alar Limited contained a reference to “Loan”. In addition the subsequent cheques from SBT made reference to “loan return”. It is also agreed that as of January, 2008 the principal outstanding on the loan was $240,000. In his evidence Mr. Zakharov described the circumstances surrounding the signing of the promissory note dated January 14, 2008. Mr. Zakharov testified that the loan from Alar Limited was part of a transaction whereby Mr. Horowitz would obtain a 29 percent interest in SBT. However, by June of 2007 it was apparent that the deal with Mr. Horowitz wasn’t going to proceed. He therefore recognized that the loan from Alar Limited needed to be repaid. This is what prompted him to issue the first cheque for $100,000 dated June 15, 2007 in partial repayment of the loan. He explained that he promised Mr. Horowitz that his company SBT would pay back the money it owed.

[ 22 ] There is evidence that Mr. Zakharov was actively looking for other investors for SBT so that he could repay the loan to Alar Limited. Mr. Zakharov entered into a share purchase agreement with another investor, Victor Fradkin. This agreement dated June 11, 2007 clearly acknowledged the debt owing to Alar Limited in paragraph 5.7. It is also referenced in an appendix to the agreement.

[ 23 ] By January, 2008 Mr. Horowitz was pressing Mr. Zakharov for repayment of the loan. Mr. Zakharov testified that he asked Mr. Horowitz for more time and an extension was granted for repayment to September 1, 2008. A promissory note was prepared dated January 14, 2008 and signed on January 15, 2008. In the promissory note the borrower is identified as SBT and Vasily Zakharov. Interest is stated to be 10 percent per annum on any unpaid amounts. There is also a provision for a personal guarantee. This clause initially read as follows:

“GUARANTEE: Payments due under this note are secured by the personal guarantee of Norbert Horowitz. It is hereby agreed to that the payee is entitled to seek the fulfillment of all the provisions and covenants of this note, including payment thereof, from Norbert Horowitz. The payee is permitted to take such recourse and/or action against Norbert Horowitz at any time and payee does not have to wait for default by the borrower under the note nor is the payee first obligated to exercise any or all of its methods of recourse under the note or permitted by the laws of the Province of Ontario against the borrower”.

[ 24 ] It is apparent that there was an error in the wording of the guarantee as it refers to the guarantee being provided by Norbert Horowitz while the funds had been advanced by a corporation controlled by Mr. Horowitz. In addition Mr. Zakharov signed the agreement as guarantor.

[ 25 ] In his evidence Mr. Zakharov stated that on the day after the note was signed Mr. Horowitz contacted him and told him that there was a mistake in the wording of the document. He and Mr. Horowitz met again on January 15, 2008 and Mr. Zakharov initialled changes to the guarantee paragraph so that it now read as follows:

“GUARANTEE: Payments under this note are secured by the personal guarantee of Vasily Zakharov. It is hereby agreed to that the payee is entitled to seek the fulfillment of all the provisions and covenants of this note, including payment thereof, from Vasily Zakharov. The payee is permitted to take such recourse and/or action against Vasily Zakharov at any time and payee does not have to wait for default by the borrower under the note nor is the payee first obligated to exercise any or all of its methods of recourse under the note or permitted by the laws of the Province of Ontario against the borrower”.

[ 26 ] A plain reading of the promissory note as revised would make it clear that Mr. Zakharov was giving his personal guarantee for the debt of $240,000 plus any accrued interest.

[ 27 ] Mr. Zakharov testified, however, that he did not understand that he was personally guaranteeing the debt of SBT. He testified in-chief that he thought he was signing a promissory note as a director of SBT. In cross-examination when referred to the relevant paragraph and the reference to guarantee he stated that he thought he was signing as guarantor as the representative of SBT. Mr. Zakharov had some difficulty, however in explaining why he was required to sign the promissory note both as a representative of SBT and as guarantor of the same company.

[ 28 ] Mr. Zakharov also testified that he has difficulty understanding the English language. At trial he gave his evidence through an interpreter. He further stated that he did not have any lawyer available to him at the time he signed the document to explain what he was signing. He acknowledged, however, that he was not misled by Mr. Horowitz in signing the promissory note. He also agreed he had legal counsel available to him, but he chose to sign the document without legal advice.

[ 29 ] I have difficulty accepting Mr. Zakharov’s evidence that he did not understand English sufficiently well to understand what he was signing. Mr. Zakharov was an experienced business person who entered into a number of sophisticated transactions both with Mr. Horowitz as well as other investors. In his evidence Mr. Horowitz stated that he never had difficulty in dealing with Mr. Zakharov in English. Although they did speak Russian from time to time he suggested most of their negotiations took place in the English language.

[ 30 ] The plaintiffs called Mr. Victor Fradkin as a witness. Mr. Fradkin purchased an interest and gave a loan to SBT as well. He understood the money he was investing into SBT was going to repay the debt owed to Alar Limited. Mr. Fradkin stated that he spoke English to Mr. Zakharov on a regular basis and that Mr. Zakharov had no difficulty in dealing with him on the purchase agreement. He did not require any interpretation during the course of their negotiations. He further stated that Mr. Zakharov never asked for the assistance of an interpreter in dealing with the documentation and did not appear to have a problem with English.

[ 31 ] This evidence was also supported by another witness called by the plaintiff, Mr. Fima Dreff. Mr. Dreff entered into a share purchase agreement with Mr. Zakharov. He stated that he spoke to Mr. Zakharov in either Russian or English. He further testified that he and Mr. Zakharov reviewed the share purchase agreement being negotiated together and Mr. Zakharov did not appear to require any interpretation. He appeared to understand their agreement. I also find it significant that Mr. Zakharov’s own lawyer was communicating to him in English via email attaching various draft agreements for Mr. Zakharov’s review. Mr. Zakharov confirmed that his lawyer, Mr. Hohots was a Russian speaking lawyer. If Mr. Hohots had any concern about Mr. Zakharov’s ability to understand English it seems very unusual that he would write to his client via email in the English language.

[ 32 ] In addition, in the agreement entered into between Mr. Zakharov, Mr. Fradkin and others paragraph 5.7 as previously noted makes reference to the debt of SBT which is owed in the sum of $390,000. As part of that paragraph it states,

“All common shareholders parties to this agreement agree that Alar debt shall remain a liability of the corporation. However, it shall become Vasily Zakharov’s individual responsibility to make arrangements to have Alar debt discharged from the corporation’s available capital including capital raised from the common shareholders parties to this agreement. Such discharge shall be completed with 8 months from the date of signing of this agreement”.

[ 33 ] It is fair to say that this provision stops short of recognizing that Mr. Zakharov had a personal responsibility to pay off the debt to Alar. Nevertheless taking into account all of the evidence I have concluded that Mr. Zakharov did understand the English language in a way that would permit him to understand his personal responsibility for the debt of SBT. This conclusion is highlighted by the fact that one day after signing the agreement on January 15, 2008 he was called back by Mr. Horowitz to initial the changes to the guarantee provisions. It would appear to be an inescapable conclusion that Mr. Zakharov would have had his attention drawn to the specific paragraph which contained the guarantee and which he initialled.

[ 34 ] I also find it significant that Mr. Zakharov was a named party on the promissory note. He signed the promissory note not only as the authorized signing officer of SBT but also individually. In signing personally he put his signature above his name which also identified him signing as “guarantor”. I therefore conclude that Mr. Zakharov must have known he was taking personal responsibility for the debt. I reject his evidence that he did not understand the nature of the document because of a language difficulty.

[ 35 ] As noted in the law of guarantee by Kevin McGuinnes (2 nd edition 1996) the case law would suggest that for a successful defence of non est factum the defendant must prove that he did not know the actual contents or character of the document that he signed. As noted in paragraph 4.25 of that text,

“In the absence of misrepresentation, the courts show some considerable reluctance to entertain the defence of non est factum. Subject to unusual cases such as Chiswick, where misrepresentation is not in issue or where the surety is illiterate, the likelihood of a successful defence of non est factum appears to be governed by whether the defendant was negligent in not determining the true character of the document at the time when he signed it. Where the defendant was careless or reckless in not enquiring into the nature of the document (as for example, where he failed to read the document although given ample opportunity to do so) he will not be allowed to escape liability merely by showing that he did not know what he was signing, and there is even less ground for relieving a person who has carelessly signed a document that he knew to be a guarantee, without taking the time to determine its extent. On the other hand, if the surety signed the agreement under a reasonable misapprehension of its nature the defence may be raised successfully”.

[ 36 ] As I have concluded that the defendant in this case understood the nature of the promissory note and the guarantee which it contained I find that he is bound by its terms.

WAS THERE CONSIDERATION FOR THE PROMISSORY NOTE

[ 37 ] An issue has arisen during the trial as to whether there was consideration given for the promissory note. In this regard the evidence of both Mr. Horowitz and the defendant are that the promissory note was signed in circumstances where Mr. Zakharov was seeking an extension of time for repayment of the SBT debt. This would appear to satisfy the requirement for consideration.

DOES THE DESCRIPTION OF THE LENDER AS ALAR FOODS AND PACKAGING INC. AFFECT THE ENFORCEABILITY OF ITS PROMISSORY NOTE AND GUARANTEE

[ 38 ] As noted above it came to light during the trial that Alar Foods and Packaging Inc. changed its name to Alar Investments NA Limited on November 12, 2008. The Articles of Amendment were filed on November 19, 2008. In the promissory note the payee is described as Alar Foods and Packing Inc. There is no reference to the new corporate name. It is apparent that at the time the promissory note was originally signed on January 15, 2008 the lender’s name was correctly identified in the note. However, the evidence is that the time for repayment was amended on the note on or about November 26, 2008 which was after the corporate name change. The name of the payee under the promissory note was not changed to reflect the new corporate identity of Alar Limited. The question which arises in the circumstances is whether the failure to update the corporate name for the payee has any effect on the validity of the promissory note and guarantee.

[ 39 ] The evidence is clear that at the time the promissory note was initially signed on January 15, 2008 the name of the payee was correctly identified. The failure to amend the name of the payee at the end of November, 2008 when the time for repayment was extended from September 1, 2008 to September 1, 2009 is not in my view material. There was no change in the nature of the corporation other than a change of name. It remained in operation. There were no amalgamations with another corporation which changed in any way the character of the corporation.

[ 40 ] In the case of Toronto-Dominion Bank v. Poli Holdings Limited , 1999 CarswellOnt 1250 Justice Kozak commented on the effect of an amalgamation during the course of a continuing guarantee. At paragraph 36 of his decision he concludes,

“This is a case where, during the course of a continuing guarantee, there was an amalgamation or merger between the creditor, Central Guarantee Trust and the plaintiff, Toronto-Dominion Bank. The effect of this amalgamation is little more than a mere change of name of the creditor company with no fundamental change in the nature of the body corporate with respect to its operations. Under the circumstances, it cannot be said that the amalgamation of the creditor with another company, would affect a surety’s rights under a continuing guarantee so as to warrant a release of the surety from any further liability”.

[ 41 ] The effect of a corporate name change was considered by the Nova Scotia Supreme Court in T.D Financing Services Inc. v. McInnis , 2012 Carswell NS59 . In that case the court commented,

“A corporate ‘name’ is merely a means of identification and a change of name does not affect the identity of the company nor its continued existence as the original body corporate” ( Alliance Securities Ltd v Posnekoff (1922), 16 Sask.L.R.214, 1922 CarswellSask 227 (Sask KB.) Para2 (KB)). Just as changing a human person’s family name has no bearing on that family’s debt obligations or assets, so too does changing a corporate person’s name have no bearing on the corporation’s legal obligations or entitlements”.

[ 42 ] I have therefore concluded that the change of name by Alar Foods and Packaging Inc. to Alar Investments NA Limited does not affect the validity of the promissory note and guarantee.

IS THE PROMISSORY NOTE AND GUARANTEE IN FAVOUR OF ALAR INC. DATED AUGUST 9, 2009 VALID AND ENFORCEABLE

[ 43 ] Mr. Zakharov acknowledged that he understood he was signing a personal guarantee when he signed the promissory note relating to the loan of $50,000 to Sollo. The personal guarantee by Mr. Zakharov was for the sum of $25,000. In his evidence Mr. Horowitz explained that the personal guarantee of Mr. Zakharov was limited to $25,000 based on the fact that he and Mr. Zakharov were expected to be equal partners in the business.

[ 44 ] Mr. Zakharov takes that position that this guarantee is not enforceable because he resigned as an officer and director of Sollo on July 8, 2010. He suggests that at the time he left and Mr. Horowitz took over management of the business there were more than enough assets to satisfy the promissory note. However, Mr. Zakharov has not introduced any reliable evidence with respect to the value of any inventory that was left with Sollo at the time of his resignation.

[ 45 ] Mr. Horowitz in his evidence stated that after Mr. Zakharov left the business it was closed by his chartered accountant. He explained that after Mr. Zakharov left there was no one who had the necessary experience and knowledge to run the company. There was a balance of about $4,000 left in the company’s bank account which was transferred back to Alar Inc.

[ 46 ] At the time the business was closed there were some raw materials and equipment belonging to Sollo. Mr. Zakharov acknowledged in his evidence that he moved Sollo’s products and equipment over to a business operated by Mr. Dreff. In Mr. Dreff’s evidence he acknowledged that he received the property of Sollo Foods in his warehouse. He subsequently asked Mr. Horowitz to pick up the Sollo equipment from his warehouse. At that time Mr. Horowitz instructed him to dump the material in the garbage. He subsequently dumped the material in the garbage as requested by Mr. Horowitz.

[ 47 ] In the absence of any reliable evidence as to the nature and value of any equipment that was left in the Sollo business I conclude that this material did not have any commercial value and accept the evidence of Mr. Horowitz that the financial assets of Sollo after Mr. Zakharov resigned was approximately $4,000 which was left in the bank account. Plaintiff’s counsel agrees that the sum of $4,000 should be split equally between Alar Inc. and Mr. Zakharov as they both had an equal ownership interest in Sollo. I therefore conclude that Mr. Zakharov should be entitled to a credit of $2,000 on account of the guarantee which reduces the claim on this guarantee from $25,000 to $23,000.

ARE THE GUARANTEES VOID BECAUSE THERE WAS NO NOTICE FROM THE CREDITOR OF THE DEBTOR’S FAILURE TO FULFIL AN OBLIGATION

[ 48 ] In the Statement of Defence it is pleaded that Mr. Zakharov is not liable under the guarantee because no proper demand for payment pursuant to the guarantee was ever made to him. In reviewing the promissory note in favour of Alar Limited it is apparent that there is no provision requiring notice. There is a specific provision that the guarantor waives, “All demands for payment, presentation for payment, notices of intentions to accelerate maturity, notices of acceleration of maturity, protests and notice of protests to the extent permitted by law”.

[ 49 ] In the promissory note in favour of Alar Inc. dated August 10, 2009, which relates to the business of Sollo there is similarly no requirement for notice to be given to the guarantor. The plaintiff’s solicitor has referred to the case of Watmough v. Francesca Trust , 1999 CarswellOnt 1879 . In this case the court considered whether a demand to the guarantor was required. The court stated,

“It is common ground that a common law demand to the guarantor is not necessary by reason only of the contingent nature of the guarantor’s liability. A creditor claiming under a guarantee is not required to make demand before action unless the plain wording of the guarantee requires this to be done”.

[ 50 ] As neither guarantee requires a demand to be made by the creditor before an action can be commenced I have concluded that this does not provide a defence to the plaintiff’s claim.

CONCLUSION

[ 51 ] I have concluded that Alar Limited is entitled to judgment against the defendant for the sum of $240,000 plus interest at 10 percent from January 15, 2008 to date. Credit is to be given to the defendant for all payments made by SBT on account of interest. If there is an issue with respect to the calculation of the amount paid by SBT on account of the accrued interest the parties may seek further direction from me.

[ 52 ] The plaintiff Alar Inc. is to have judgment against the defendant for the sum of $23,000 together with interest at the rate of 6 percent from August 10, 2009 up to the date of judgment. Again if there is any issue with respect to the calculation of interest owing the parties may seek further clarification from me.

[ 53 ] The costs of this action shall be considered subsequent to the release of this decision.

The Honourable Mr. Justice M. McKelvey

Released: December 7, 2012